Experts: Azerbaijan can ensure its full energy independence

The event, organized with the support of the Azerbaijani Office of the Russian Development Foundation (AORDF) "Caucasian Democracy Institute," was attended by independent experts from Russia Ilya Zaslavsky, Alexander Karavayev, Georgy Nozadze, Azerbaijani MPs Agabek Askerov, Siyavush Novruzov, Mubariz Gurbanly, Fazil Gazanfaroglu, political experts Rasim Musabekov, Zardusht Alizade, Mubariz Ahmedoglu, Arif Yunusov, Ilgar Mammadov, Leyla Aliyeva, experts Ilham Shabanov, Allay Ahmedov, historian Valida Mustafayeva. The event was opened by the head of the AORDF Rauf Gasanov.

The participants stressed that Azerbaijan's energy potential is steadily growing, and, already today, the country can be regarded as a self-sufficient energy producer and an authoritative fuel exporter in the region.

The Russian experts focused on the political, economic, ecological, social and technical aspects of the gas supplies in Azerbaijan and Russia. Alexander Karavayev approached energy security problems geo-politically. He said that Azerbaijan has resolved these problems due to own resources and complementary policy and, especially, due to the launch of the oil pipeline Baku-Tbilisi-Ceyhan (BTC) and the gas pipeline Baku-Tbilisi-Erzerum (BTE). Today, the Azerbaijani gas consumers – unlike those in Ukraine, Belarus, Moldova, Georgia and Armenia – are almost independent from Russia's gas policy. Karavayev noted that not only the CIS countries but also many people in Russia are concerned that, sometimes, Gazprom rises its gas tariffs quite unreasonably. Karavayev wonders if Russia's gas tariffs are economically conditioned – why exactly $110 or $130 and not $50 or, say, $200?

In fact, the "gas stick" has not so far helped Russia to attain any of its political goals, except for merely economic profit. On the contrary, the last rise in the Russian gas tariff has pushed Ukraine, Georgia and Moldova to drift even farther to the west and has caused strong displeasure in Armenia, who has already found alternative sources of gas. Karavayev believes that Moscow's new, better-balanced tariff policy is just a matter of time. Returning to Azerbaijan’s energy security, Karavayev said that Azerbaijan effectively employs its equidistant situation from all significant blocs in the CIS territory and, at the same time, declares western orientation. All the subjects of inter-action in the post-Soviet area, including Russia, are influenced by the US policy. And the internal stability of each of them strongly depends on their ability to successfully maneuver under this influence. Azerbaijan also considers this influence but is realistic about its limits.

Similar models of state administration have brought Russia and Azerbaijan closer to each other. Russian-Azerbaijani relations have significantly improved since Jan 2001, when the Russian President paid a visit to Baku. At the same time, unlike Russia's other CIS partners, Azerbaijan is not a member to any structural organizations. After returning into the CIS (one of the first decisions of Heydar Aliyev), the Azerbaijani authorities stayed neutral towards other integration structures (CES, EurAsEC). Azerbaijan cannot be a member to the CSTO because of Armenia's membership therein. Though involved in some alternative unions, Azerbaijan is not very active there. The role of GUAM's energy locomotive is possible but hardly real for Azerbaijan as its key export projects are aimed at markets outside GUAM. The active attempts of the Ukrainian diplomacy to add Azerbaijani oil to the Russian supplies have proved to be just illusions.

Exactly in the same way the Saakashvili administration has failed to change the parameters of the Baku-Erzerum contract. Georgia's quota in the project has been left unchanged – 5% of potential transit. Karavayev noted that during the 1st Summit (Dec 1 2005) of the new promising anti-Russian bloc "Commonwealth of Democratic Choice" (CDC), Azerbaijan was represented only on a FM level. Obviously, small as it is, Azerbaijan is quite successfully balancing between different vectors. In conclusion, Karavayev stressed that, unlike Russia, Azerbaijan has decided to invest the money of its Oil Fund in the economy and the social sector. According to the presidential decree "On the Long-Term Strategy for Oil and Gas Income Management," the Azerbaijani Government allocates the money for the construction and restoration of roads, schools and hospitals, the purchase of energy equipment and other crucial projects. In Russia they believe – without much reason — that such a policy may lead to high inflation.

Expert Ilya Zaslavsky noted that there are mutually exclusive views of the export appeal of the Azerbaijani fuel. He reminded the audience that during his last visit to Baku the Romanian President said: "I think that Azerbaijan can be highly competitive on the European markets." On the other hand, Turkey is slow to buy the Azerbaijani gas. Zaslavsky gave some statistics: the total length of the BTE from Azerbaijan till the Georgian-Turkish border is 690 km (442 km via Azerbaijan and 248 via Georgia). The length of the Turkish 'corridor' is 280 km. Experts say that Azerbaijan needs as much as 100mln c m of gas to fill the whole pipe. Even though the Azerbaijani gas has already reached Erzerum, Turkey is falling behind in laying its section of the pipe and will finish it no earlier than by the end of this year.

Presently, in order to fill the BTE Azerbaijan uses the gas extracted from the Azeri-Chirag-Gunashli deposit by AIOC and BP. In the third quarter of 2006 Azerbaijan will start injecting gas from the Shah Deniz deposit, where a consortium of western companies and their partners, particularly, Lukoil, have built a unique deep-water platform – a project costing a total of $1.3bln. The initial resources of Shah Deniz are estimated at 178bln c m of gas and 34mln tons of gas condensate, while the total ones – at 1trl c m, of which 600bln c m are recoverable resources. This is the biggest gas condensate deposit in Azerbaijan. The BTE can transfer up to 30bln c m a year. Initially, it will export 2.2bln c m a year and later 8.5bln-9bln c m a year. The full rate extraction will be started at the second stage – in 2010-2012.

Zaslavsky pointed out that even though the world gas prices have been steadily growing in the last decades, they may slump one day and Azerbaijan may prove to be quite unprepared for that, just as it is unprepared today to be fully independent from Russia in energy. The Azerbaijani authorities will hardly be able to ensure their full energy independence in the near future and will remain seriously dependent on Russia and its behavior on the international fuel markets for quite a long time. Consequently, Azerbaijan will have to consider this factor in its foreign policy.

Rasim Musabekov disagreed with Zaslavsky. He thinks that the influence of the political factor on the fuel price policy is decreasing. Healthy market relations make the supplier and the consumer equally responsible. The energy security of suppliers and consumers is inter-dependent and inter-related and cannot be considered irrespective of reality.

On the other hand, for each energy market participant reality is different and, consequently, different is the degree of security. For example, even though Azerbaijan is much more secure in energy than Georgia and Armenia are, it buys from Russia twice as much gas as they do. Azerbaijan may safely stop buying Russian gas as it has its own energy sources and a ramified pipeline network (Baku-Novorossiysk, Baku-Supsa and Iranian branch to Nakhichevan). This all will allow Azerbaijan to become self-sufficient already next year.

Musabekov said that next year Georgia and Turkey will substantially raise their energy security. Today, Turkey is in a favorable situation: it has three gas pipes from Russia, Iran and Azerbaijan. Azerbaijan may sell its gas for just $120-130, which may influence the prices of the Russian and Iranian gas. Besides, Turkey has good capacities for gas transit to Europe. As regards Azerbaijan, the only threat to its energy security is a possible pipeline damage caused by acts of sabotage.

Ilgar Mammadov agreed that Azerbaijan is sufficiently secure in terms of energy. He noted that the country is very much interested in the sharp rise in the gas prices. The last rise by Russia has strongly aggravated its relations with Armenia. The Armenian mass media and public appeared with lots of anti-Russian statements and pro-western slogans. As a result, Armenia has turned its face towards Iran. One more rise will completely spoil Armenian-Russian relations, and Armenia will start searching for ways-out of this situation, while Azerbaijan will be able to turn it into own advantage "by returning its occupied territories and, certainly, Nagorno Karabakh."

The Russian experts pointed to Russia's gas problem. Karavayev said that the further rise in the Russian gas prices will not give Russia any dividends. Each consumer country has the limit beyond which it will refuse to buy gas. The present tariff policy, particularly, the mechanism preventing Kazakhstan from supplying gas via Russia to Europe, is incorrect and unpromising. Gazprom's monopoly may create numerous problems in Russia. "All we know about our real gas reserves is what Gazprom tells us. Its further price policy is also a closed book to us," Karavayev said.

Zaslavsky pointed out that some Azerbaijan's regions are short of gas, while the Azerbaijani authorities are actively exporting gas abroad. He noted that the laying of pipelines is a very expensive business, today, but small territory allows Azerbaijan to do it with much less expenses.

Allay Ahmedov noted that Azerbaijan's energy security may be annulled by military factors – such as a new Karabakh war or possible US campaign against Iran.

Ilham Shabanov reminded the audience that the price of the gas Turkey receives from Russia is $262 and from Iran - $250, while Azerbaijan is ready to sell its gas to Turkey for only $120. So, it is very strange that Turkey is delaying the building of its section of the BTE and has refused to buy Azerbaijani gas in the coming half-year. The possible reason might be Russia's offer to undertake part of Turkey's expenses and technical efforts to lay gas pipelines to Italy and Israel – something that will make Turkey one of the biggest energy knots in the region. One more factor is that a Russian-Turkish JV is planning to build a huge gas storage in southern Turkey near Lake Tuz for ensuring the stability of Russian gas supplies to Europe from the south. This project is of strategic importance for Russia and fully serves the interests of Turkey.

Shabanov noted that by the end of this year Azerbaijan will import 4.5bln c m of gas from Russia. However, it will extract more than that in 2007. "So, why should we buy Russian gas?" The answer is in the politics: Azerbaijan buys Russian gas because it wants to preserve friendly relations with that country. Concerning the domestic gas supply in Azerbaijan, Shabanov said that, in the Soviet times, 83% of the country had gas, which was the highest index in Europe. After the USSR collapse, this figure slumped, and only recently the AzeriGaz managed to raise it to 45%-46%.

Mubariz Ahmedoglu welcomed the idea of roundtable and stressed that it is very important to discuss the problem of unequal electricity exchange between Russia and Azerbaijan, particularly, the fact that Russia overprices its electricity for Azerbaijan. "We sell our electricity to the Russians for 2 US cents per 1 KWh, but buy it from them for 4 US cents," Ahmedoglu said. Still, he believes that the sides will equalize the situation. He noted that, today, even the military circles in Russia see that they can no longer use pressure and need to establish and develop mutually beneficial cooperation with their neighbors. Azerbaijan's last years' efforts to ensure its energy security have helped Turkey to become a big transit player. As regards Armenia, it is in quite a difficult situation: Iran will not close its eyes to the fact that it is going to sell to Russia the gas pipeline built by Iranian specialists for Iranian money.

Zardusht Alizade noted that new times dictate new relations. In the last 15 years Russia has seen that its 'special' relations with the post-Soviet republics lead to huge economic losses and affect the living conditions of its own citizens. Almost all Russia has done recently shows that that country is becoming more pragmatic and is seeking to have normal market relations with its neighbors, like everybody in the world has.

Arif Yunusov said that every time he is surprised to hear people talking about the economic profit of one or another project as, in all of them, political interests are prevalent and decisive. He noted that it would be much cheaper for Azerbaijan to lay its oil and gas pipelines to Turkey not via Georgia but via Iran. However, this might cause some problems in the future and Washington's strong displeasure at present. As regards Russia, Yunusov thinks that Moscow has no clear energy policy. Moscow is in euphoria over the last years' rise in the world fuel prices. If one can understand Russia when it punishes Ukraine, it is hard to understand it in the story with Georgia as its actions hit Armenia too. Russia's policy on Baku is also contradictory. "I always say that Russia is doing its best to be disliked in Azerbaijan but is not succeeding as the US is doing it much better," Yunusov said with irony. He agreed with the other experts that Azerbaijan is self-sufficient and secure in terms of energy.

Georgy Nozadze is concerned for Russia and Azerbaijan as their policies heavily rely on fuel prices. Even though in the last 100 years fuel prices have been growing, one should not forget that once they slumped by as much as 80%. True, they rose again in some 3 years, but Russia and Azerbaijan will hardly survive such a long period. Even stabilization fund will not help them. That’s why they need a detailed state program on how to effectively use the revenues they get from the rising oil prices. Another big threat is a global ecological disaster in the Caspian Sea. Here Baku is better protected than Moscow as it has involved many private foreign companies in its fuel projects while Moscow has not. Nozadze noted that expertise and healthy competition substantially reduce risks.

During the discussion Rasim Musabekov and Ilgar Mammadov pointed out that Georgia's energy security is exclusively important for Azerbaijan. They stressed that if Russia stops supplying gas to Georgia, Azerbaijan will do it. Zaslavsky and Gasanov summed up the results of the roundtable. They urged the experts to meet again in order to discuss the numerous problems of the energy and other important spheres of Azerbaijan and Russia. Regnum